CFTC Labels Bitcoin, Ethereum as Commodities to Convict $120M Oregon-based Crypto-Ponzi Scheme

• The scheme raised approximately $44 million from roughly 170 individuals.
• The fund promised a steady return of 15% through Bitcoin, Ethereum, and other “stable” digital asset investments.
• The scheme misappropriated funds from a carbon offset scheme creating a $20 million shortfall.

An Illinois district judge has ordered a “Ponzi-like” crypto schemer and his company to pay over $120 million in fines.

The fraudulent fund, primarily conducted by Oregan man Sam Ikkurty, “materially” misled investors with promises of steady returns through digital asset commodities such as Bitcoin (BTC) and Ethereum (ETH), also misappropriated funds through a carbon offset program.

The Ruling

As per the press release from the U.S. Commodity Futures Trading Commission (CFTC), an Illinois district judge has ordered the defendants to repay the victims, and forfeit all of their profits.

Initiated by the CFTC, the case found that the defendants “committed all alleged violations” of the Commodity Exchange Act (CEA) and CFTC regulations.

“Judge Rowland also ordered more than $83.7 million in restitution and $36.9 million in disgorgement jointly and severally against Sam Ikkurty of Oregon and Jafia, LLC, Ikkurty Capital, LLC d/b/a Rose City Income Fund I, Rose City Income Fund II, and Seneca Ventures, LLC.”

One particularly noteworthy development from the case was that Judge Rowland’s order found the OHM and Klima cryptos to be commodities within CFTC jurisdiction. This could potentially extend the CFTC’s crypto purview.

A “Classic” Ponzi Scheme

Ikkurty conducted numerous webinars and trade shows to recruit participants to the scheme, promising steady returns of 15% per year in “net profits”.

Hyping up the success of his digital asset fund, Ikkurty claimed to invest in “stable” digital assets and would gain confidence by misrepresenting his success. Ironically, the CFTC found that his actual experience with crypto and digital assets “consisted of losing his personal Bitcoins to a hack“.

Ikkurty didn’t provide any returns on investments to his customers. Ikkurty was described as running “something akin to a Ponzi scheme”. Judge Rowland concluded that the scheme’s marketing materials misstated the fund’s historical performance, omitting that the fund’s value fell 98.99% over a few months.

The order also found that Ikkurty invested in unstable digital assets, namely OHM and Klima, with the latter being related to a carbon offset program.

Carbon Offsets

The judgment order states that the defendants also sapped funds from a carbon offset program. As per the CFTC, the defendants sold products that had backing from digital assets relating to carbon offsets.

Instead, the defendants transferred these funds to early investors so that they would avoid losses. This created a shortfall of more than $20 million for program participants.

The entire series of events has been described as a “classic Ponzi move” in Judge Rowlands’s order. Unfortunately, the CFTC notes that the defendants may not have sufficient funds or assets to repay funds to victims.